'Death' of the Ad Network

Read just a handful of blogs, forum posts and marketing puff from some of the emerging technology providers and you will quickly arrive at the conclusion that the ad network is in its death throes. Shiny tech knights have ridden to the rescue of the captive damsel publishers, speared the old network dragons and now we can look forward to living happily ever after. Happy days indeed. Except of course, that analysis is all wrong.

It helps to be clear about the players and the space of course. And these are best defined by function. For whatever else they get up to, publishers generate an audience by producing content. Advertisers and their agents on the other hand are in the business of selling products and services. Hence the centuries-old love affair between advertisers and publishers.

Then there is the space in between. These are the companies that specialise one way or another in the brokering of media buying and selling.

These 'in-betweeners' (lets keep it simple to start with) have been there in one form or another from the digital media advertising get go. Any site with decent traffic in the late 1990s but no in-house sales team soon found offers on the table from these new brokers. Many of the larger ad networks of today trace their DNA back to those times. And like a healthy simple organism, ad networks multiplied and evolved, specialising, introducing new formats and technologies; working with simple tools to improve client ROI.

The Dark Side

There was the dark side of course. The hurdles to entry were low and many a disgruntled media sales person sloped off with confederates to set up a new network. This resulted in a crowded marketplace featuring street-wise pugilistic types willing to cut corners to make the next deal pocketing fat hidden commissions. And there were casualties as brands found themselves sponsoring the occasional execution or porn site and hapless planner buyers got taken for a wild ride. Dubious attempts at self regulation coupled with the ultimate sanction of advertiser boycotts contained and corrected the worst excesses.

The story was far from all bad however and this is what the bright shiny new things won't want to dwell on. Ad networks provided massive cost-effective reach for marketers over the past 15 years by working with the long tail of the web, corralling its myriad sites into performance channels often at knock down prices. They pioneered the behavioural and contextual technologies, preroll formats, specialised in verticals and different sales models. They also provided liquidity and that most intangible of assets: experience in managing advertising campaigns. Meanwhile the publisher has benefited from a revenue stream - in addition to Adsense PPC - that would not have been possible without the network even if the publisher had its own inhouse sales team.

Like any marketplace crowded with suppliers and customers (think of travel agents, estate agents and insurance brokers), the brokers appeared and market forces did the rest. And for the most part it worked well.

So who are the new players and how do they fit into this cosmos? Some of us have been waiting their arrival for some years - years featuring aborted attempts from other start-ups whose names are now fading that offered exchanges riddled with bugs, poor liquidity and brand safety issues. But in the past two years or so, Google and some much smaller others solved the issues and the new tech companies emerged in force. However you cut it, in rough terms they can be grouped into technologies that either specialise in selling or buying of online display advertising – so-called supply side and demand side platforms - SSPs and DSPs. Cool huh? But be clear, these are technologies that service a space, they do not redefine that space. So they may have aircon and LEDs on the dashboard but they are still in-betweeners or brokers by any other name.

What really has confused things is that some agencies have been distracted from their core activities and migrated downwards into that space as well. This however introduces some real conflicts of interest and inefficiencies. Its a whole other story but there is a reason that most vertically integrated industries broke up and specialised decades ago – digital advertising will inevitably do the same, defined by the publisher the broker and the advertiser.

Back to the Future

So, back to the future, 2011 some predict will be a year of rapid consolidation among these new tech companies, DSPs, networks, Agency Trading Desks (ATDs) and exchanges gobbling each other up. Well lets think that through: Exchanges and SSPs could well find themselves the target of media groups looking to consolidate. Trading desks might well find themselves spun off at some soon future point when market conditions, trends and conflicts of interest force this. They may also go sooner once agency heads remember that creative and media planning are their core disciplines. And the ad networks? Well, look to see some wound up as market pressures squeeze margins. But look to see others gobble up DSPs, trading desks and even exchanges if they have the resources to do so. There are precedents for each of these scenarios.

For their part, new tech companies have to provide a return for their VC investors so the M&A pressure is on them. Then they'll be off to develop some more great tools. Ad networks however aren't going to crawl off and start making furniture. They have the relationships, the tools and the experience. We think you'll be seeing a lot of the same faces around for a good many years to come albeit in a more effective, efficient evolved state.